Litigation: Using case law and ethical rules to negotiate “reasonable” billing rates

There are some creative tools that in house counsel can utilize to assure that the hourly litigation rates which are charged are reasonable and appropriate.

By David McMahon|July 25, 2013 at 07:30 AM

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There are some creative tools that in house counsel can utilize to assure that the hourly litigation rates which are charged are reasonable and appropriate. In our last article we discussed the role billing surveys play in these rate negotiations.

In most states, it is an attorney’s professional responsibility and fiduciary obligation to seek payment of only those fees that are “reasonable.” Rule 1.5(a) of the ABA Model Rules of Professional Conduct expressly provides that “A lawyer shall not make an agreement for, charge, or collect an unreasonable fee or an unreasonable amount for expenses.” Therefore, a key component of the statutory and case law concerning attorney billings is rooted in the ethics arena. All attorneys owe fiduciary duties to their clients and, in most jurisdictions, to a third-party payor as well.

Most states have adopted Model Rule 1.5(a). In determining the reasonableness of a legal fee, a court will look to and will apply the factors enumerated in Rule 1.5(a) of the Model Rules, including:

The time and labor required, the novelty and difficulty of the questions involved and the skill requisite to perform the legal service properly

The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer

The fee customarily charged in the locality for similar legal services

The amount involved and the results obtained

The time limitations imposed by the client or by the circumstances

The nature and length of the professional relationship with the client

The experience, reputation, and ability of the lawyer or lawyers performing the services

Whether the fee is fixed or contingent

Case law may also provide additional factors to consider in the determination of whether the rates submitted by legal counsel are reasonable. For example, a Nevada district court stated that the reasonableness of an attorney’s rate is measured by the prevailing rate in the community where the action is pending. In addition, many courts nationwide have applied the 12 factors articulated in Johnson v. Georgia Highway Express, Inc.

The 12 Johnson factors are:

1) the time and labor required; 2) the novelty and difficulty of the questions; 3) the skill requisite to perform the legal services properly; 4) the preclusion of other employment by the attorney due the acceptance of the case; 5) the customary fee; 6) whether the fee is fixed or contingent; 7) time limitations imposed by the client or the circumstances; 8) the amount involved and the result obtained; 9) the experience, reputation, and ability of the attorneys; 10) the “undesirability” of the case; 11) the nature and length of the professional relationship with the client and 12) awards in the cases.

These factors overlap to a certain extent with those enumerated in 1.5(a) of the Model Rules. Courts frequently apply this test in all types of complex litigation including copyright, patent, intellectual property and similar litigation.

To determine whether rates are “reasonable” the client should carefully review the documentation submitted. Typically, the “conversation” about applicable billing rates should take place well prior to submission of the first bill. Regardless, the attorney claiming fees has the burden of producing evidence that supports the bill There are also state statutes which may be useful by analogy. For example, under California Civil Code §2860(c)(2), “[t]he insurer’s obligation to pay fees to the independent counsel selected by the insured is limited to the rates which are actually paid by the insurer to attorneys retained by it in the ordinary course of business in the defense of similar actions in the community where the claim arose or is being defended.” These types of guidelines can further define what “reasonable” billing rates are.

A lawyer is also obligated to exercise “billing judgment” to exclude from its fee request any hours that are excessive, redundant or otherwise unnecessary (Hensley, 461 U.S. at 434 (hours that are not properly billed to one’s client also are not properly billed to one’s adversary). In litigated matters additional scrutiny may also happen. Courts will not “uncritically accept the number of hours claimed by counsel even if actually spent on the litigation, but must, in order to award fees based on them find that the time actually spent was reasonably necessary.”

Conclusion

It is an attorney’s professional responsibility and fiduciary obligation to seek payment of only those fees that are “reasonable” based on the model rules, case law and generally accepted billing principles. In house counsel who receive bills should be vigilant in not only looking at the description of the services rendered but the applicable rates as well.

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